Price image is a useful parameter when mathematically modeling an enterprise. Price image generally refers to the perceptions of customers about the prices of products offered by one enterprise as compared to perceptions about the prices of competing enterprises. Discount retailers typically cultivate a low price image while more “high end” or exclusive retailers cultivate a higher price image. Managers usually wish to provide an entire purchasing experience for their customers consistent with the price image. Thus, discount retailers need not undergo the costs of providing extraordinary services or of lavish shopping surroundings, but more high end retailers had better provide such things or risk their customers being disappointed by their shopping experiences.
The above-discussed U.S. Pat. No. 6,308,162 describes how price image may be used as a strategic objective or constraint in an enterprise model to help pricing managers price products. In one common use, an enterprise model may suggest prices for a set of products so that profits are maximized while price image remains constant. This may be accomplished by adjusting the prices of some products upward while adjusting the prices of other products downward. In another use, an enterprise model may suggest prices for a set of products to maintain profitability while lowering price image. Such a strategy may lead to greater market share in the short term and pave the way to greater profitability long term.
A need exists of a frugal, yet accurate process to quantize price image for use with an enterprise optimization model and for other purposes. But such a process has been difficult to realize. The above-discussed U.S. Pat. No. 6,308,162 teaches the use of a price index as a proxy for,price image, as follows:
                                          Price            ⁢                                                  ⁢            Image                    =                                    Price              ⁢                                                          ⁢              Index                        =                                          1                N                            ⁢                                                ∑                                      i                    =                    1                                    N                                ⁢                                                                            P                      i                                                                                      P                        i                                            _                                                        *                                      w                    i                                                                                      ,                            (        1        )            where Pi is the average price of item i in the market of interest, wi is a weighting function for item i, and N is the total number of items in the model. Unfortunately, the price index as a proxy for price image leads to an unfrugal process and produces a result that is not as accurate as desired.
The price index proxy for a price image is unfrugal because it requires obtaining prices for each item of interest in the market of interest so that average prices may be calculated. Obtaining such price data is extremely expensive. Often, an enterprise simply cannot get corresponding competitive pricing data because competitors do not offer this data to their competitors and different competitors may bundle or use entirely different pricing schemes. Even when competitive corresponding price data is obtainable, such data are so expensive to obtain that only a small amount is collected. But only a small amount of competitive price data often makes no significant contribution in a comprehensive enterprise model.
The price index is less accurate as a proxy for price image than desired because it assumes that consumers perceive prices to be as they actually are. While actual pricing is a strong influence on consumers perceptions about price, other non-price factors also influence perceptions. For example, promotional effects or a price threshold effect may cause two competing products actually priced nearly the same to be perceived as being priced very differently. While the non-price influence on perception may seem slight when applied to an isolated product, price image is often applied over a number of products where the individual prices of individual products are less distinctly perceived by customers. For price images that characterize an aggregation of products, the non-price influence on perception becomes more significant. Accordingly, the inability of the price index to capture non-price influences causes it to be inaccurate as a proxy for price image, regardless of the costs involved in obtaining price index data.